Over the past 4 years, real estate investors had access to so many hard money lenders that offered high leverage and relatively low pricing, until the COVID-19 Pandemic came along and changed the hard money landscape. Most of the newer lenders in the industry were selling their loans to hedge funds and other Wall Street-backed institutions, which suddenly stopped buying hard money loans in March 2020. With these essential capital providers, many hard money lenders have not been able to lend through April and May. Even if the secondary market comes back to life, the loan criteria will likely become more conservative.
Even though many hard money lenders halted their lending operation, real estate investors still have a lot of options. I have surveyed a number of lenders in my network and found that many still have the capital to continue lending. They either manage a debt fund, or sell their loans to individual investors as opposed to institutions. Most lend on a regional basis, and a couple are still lending nationwide. Anticipating that property value will start dropping after the shutdown, most lenders have tightened up their lending guidelines. Here is what we are seeing from most lenders for purchase and refinance bridge loans:
• Maximum LTV for Residential Property: 65%
• Maximum LTV for Commercial Property: 60%
• Interest Rates: 9.5% to 11%
• Origination Fee: 2 to 4 points
• Loan Term: Up to 24 months
The typical guidelines for fix & flip and construction loans are also slightly more conservative:
• Maximum Loan-to-Purchase Price: 80%
• Maximum Loan-to-Cost: 80%
• Maximum Loan-to-ARV: 65%
• Minimum Credit Score: 640
• Experience: 3+ successful projects in past 12 months
• Interest Payments: 6 Month paid in advance at closing
• Interest Rates: 10% to 13%
• Origination Fee: 3 to 5 points
• Loan Term: 6 to 18 months
We have only found one lender that is still offering 30-year rental loans, and their interest rates range from 7.75% to 8.75%. This may likely change once the market stabilizes. Prior to the pandemic, the 30-year rental loan was a very popular loan offering for most national lenders, with interest rates in the range of 5% to 7%.
Although there are fewer lenders in the market, property investors still have a number of options. Our website, PrivateLenderLink.com, is a directory of select hard money lending companies throughout the country, and we have filtered out the companies that are not currently lending. We will do our best to keep all the information current and will continue to gather information on the hard money lending marketing throughout 2020.
About the Author, and Private Lender Link
Rocky Butani is the founder and CEO of PrivateLenderLink.com, a marketplace for private and hard money lending. The platform is a valuable resource, providing real estate investors and mortgage brokers free and easy access to reputable private mortgage lenders for both commercial and residential investment properties.